I recently talked to a local employer who had to pay HMRC over £14,000 in taxes. The contractor working with them had failed to pay his taxes for 5 years and HMRC could see that he wasn’t a contractor – he was an employee, so it was the employer who had to pay. Ouch.
Employment Tribunals use their own criteria for deciding if a person working for a company is a contractor or an employee.
Many employers rely on a sub-contracting agreement (contract for services) to determine that the individuals working for them are contractors, and not employees or workers however Employment Tribunals do not rely on this in court.
What happens when a so called contractor wants to claim employment rights? Although it’s good to have the sub-contracting agreement in place this isn’t the only consideration that an Employment Tribunal will use to determine if the individual is an employee or a worker, which could meant that the individual has employment rights such as unfair dismissal or redundancy rights, rights to paid leave and the national minimum wage and even rights to a pension from the employer under auto-enrolment.
An employment tribunal will consider other factors to determine if an individual working for you is a contractor or an employee such as;
Mutuality of obligation – is the employer required to offer the work and is the individual required to accept the work offered? Does the individual provide services for other Companies?
Who controls the work and how it is done – questions to answer this would include;
- Who decides what work will be done?
- Who decides the way the work is done?
- Who decides the timescales?
- Who provides the equipment and the materials?
Can the contractor send a substitute to carry out the work? Or does the work need to be done by that individual?
Are there any processes or policies in place for the individual that would indicate employment? Examples would be using the disciplinary process or a holiday booking process.
Employers should note that this distinction has become more important with the introduction of pension auto-enrolment. Please see guidance from the pensions regulator on pages 8 and 9 in the document at this link http://www.thepensionsregulator.gov.uk/docs/detailed-guidance-1.pdf
Contact Lucy if you have any queries about the employment status of those working for you at email@example.com or 07769 658075